The big issues highlighted in the Herald’s Rebuilding Better series aren’t going to wait. Photo / 123RF
OPINION:
With the Reserve Bank now picking a significant recession in 2023, should we batten down the hatches and stop thinking about the long-term future?
I hope not. That would be a disaster for the New Zealand economy and ensure that we’ll continue to cycle in and out of recession for generations to come.
The problems this country faces are far greater than some persistent post-pandemic inflation and the Reserve Bank-engineered economic downturn required to address that.
It’s worth noting that nothing actually changed last week other than the Reserve Bank’s outlook.
Most economists were already expecting much higher interest rates and a recession, or at least a significant economic downturn in 2023.
We do need to head off inflation and minimise damage to the employment market, but the big issues highlighted in the Herald’s Rebuilding Better series aren’t going to wait.
Climate change, poverty, education, immigration, infrastructure, productivity and investment in technology are all crucial to the creation of a strong economy for our children and grandchildren.
It is these issues that should be front and centre of the 2023 election campaign. We should expect bold, clear and deliverable policies from both the major parties.
Over the past few weeks, the Rebuilding Better series has canvassed views on a number of these issues from a range of commentators with a surprisingly high degree of consensus.
Almost everyone agrees that in order to build a better economy we need to invest in youth.
Prime Minister Jacinda Ardern, when asked what she would invest in if she had no political and financial constraints, opted for early childhood education.
“One of the things I know makes a difference to kids’ lives in the long term is their access to early childhood education,” she said.
And she is right, of course.
When we think about education, things like achievement standards in NCEA are important.
But by the time the most vulnerable children hit high school, it‘s often too late.
For kids with the most difficult family lives, certainly stability and learning from a young age are crucial.
The Prime Minister made such a good case, I was left wondering why she hasn’t championed it more aggressively.
We can find billions for natural disasters like pandemics and earthquakes, so why not this?
As the NZ Initiative’s Oliver Hartwich noted, kids need to be well-educated so they can live full and rewarding lives. We owe it to them.
But we also want them to lead the economy in the future and to be equipped with skills in areas where New Zealand can lead the world.
Labour shortages look likely to be with us for some time regardless of how tough the Reserve Bank gets.
Monetary policy and interest rate hikes simply remove demand from the economy. Less demand means we need fewer workers because there are fewer jobs.
That’s no way to solve a labour shortage.
The bottom line is that we’re an ageing population. Covid or not, we have an issue to resolve around our future workforce.
That means we need to look more closely at new ways of working - the four-day week or more working from home.
Or flexible attitudes to allow older people to stay in the workforce for longer.
We know we don’t invest enough in the research and technology that will ultimately enable Kiwi workers to be more productive.
There are also some big decisions to be made around immigration.
To be fair, the Labour Government had a plan. A policy of restricting low-skilled immigration was aimed at driving higher investment in productive capital and ultimately higher wages.
But it was derailed by Covid. Closed borders created a short-term crisis.
Now we need to find a new path.
“It all comes back to planning,” Infometrics principal economist Brad Olsen says.
“I’d love to see a national skills plan that sets outlines and asks what sort of skills and qualifications we need, so we can target them, but also so we can see what the short-term parameters might be.
“What might they be? Is it 8000 nurses, 80,000 nurses or is it 800 nurses?”
That way, when we do open the borders, our policy choices on immigration won’t be driven by short-term political campaigning, he says.
That would then give us a much clearer outlook on what our infrastructure needs will be.
But as a starting point we know we’re already running behind on infrastructure investment.
Decades of underinvestment in infrastructure have left us with a significant infrastructure deficit - around $210 billion, according to Michelle McCormick, policy director at Infrastructure New Zealand.
Today, we are spending around 5.5 per cent of New Zealand’s GDP on building public infrastructure.
To meet the identified infrastructure deficit, this would need to increase to nearly 10 per cent of GDP or $31b annually. So what is holding us back?
McCormick argues that we’re too fearful of risk and it is costing us. She’s right. Delaying big decisions doesn’t save money, everything just costs more the longer we wait.
She also says we need to get over our fears of private funding. I agree.
Public-private partnerships open up new funding paths to speed construction. A road or a bridge with a toll beats doing nothing at all.
Another area that’s going to need investment is climate change - both transitioning to a lower-carbon economy and dealing with the challenges posed by the damage that has already been done.
If we’re smart this may actually be an opportunity to drive economic growth.
Sustainable Business Council executive director Mike Burrell said that call was being heard by the business community.
“The international context is moving rapidly as boards, executives and investors realise the scale and immediacy of the challenge and begin to prioritise the allocation of capital into climate and sustainability action,” he said.
“Ultimately this is the direction the market is moving globally – and if we don’t transform our economy, Aotearoa-New Zealand risks getting left behind and losing our competitive advantage.”
Burrell said the world was shifting toward what’s called “stakeholder capitalism”, where corporations served the interests of all of their stakeholders to deliver long-term value for their shareholders.
“And it’s putting those companies who are shifting ahead of the curve in terms of their competitive advantage.”
Let’s hope so.
How we transition our agriculture sector towards a more climate-friendly model has been a big area of conflict for the past two decades.
But again, there are opportunities for economic growth if we embrace them.
For example, reducing the national cow population doesn’t mean dairy can’t grow as an industry.
DairyNZ chief executive Dr Tim Mackle sees new opportunities in naturally grown plant and free-range animal food production.
Like other sector leaders, he believes value created by new products, different dairy product mixes, and advances in science and technology will offset any decline in milk production – and help meet climate change challenges to farming.
Cows will be bred to be more productive and efficient, grasses will change in some regions with a greater range of forage crops, farming systems will adapt to provide regional resilience and calving patterns will change (autumn calving is already on the increase, particularly in the North Island).
That’s a future most New Zealanders could get behind. We need to focus on the potential and get behind the science and technology required to make it happen.
Rebuilding better will shift focus to social issues in the coming weeks but they need to be part of the economic equation too.
There’s a large segment of the population that is underperforming economically.
We should address that because it’s the right thing to do. But also, economically, we all win if we can reduce reliance on social welfare and increase the wealth of our poorest people.
There are some specific issues and areas of conflict around how we boost Māori economic performance.
There’s no shortage of grim statistics that we need to turn around.
But there’s good news too, especially if we look at the picture at an iwi level. The Māori economy has grown from $16b to $70b in 20 years, and with a projected growth of 5 per cent per annum, that’s expected to reach $100b in assets by 2030.
Ultimately though, we need to ensure that no one is left behind.
That’s going to mean tackling housing issues and welfare reform. There’s political will on both sides of the spectrum to do this but a big divide on how it should be done.
That’s okay. That’s why we debate and talk and argue. But as we head into election year let’s do it in an intelligent way about those big issues.
Let’s leave the petty stuff behind us. Let’s make some of those hard choices.
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